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Loyalty is Good• Loyalty is good as a stabilizer• People who have been stars for us, and hit a badpatch, get a near term pass because we thinkthey are likely to become stars for us again• We want the same: if Netflix hits a temporarybad patch, we want people to stick with us• But unlimited loyalty to a shrinking firm, or to anineffective employee, is not what we are about34

For all you people who think this is superb, you should think again. Failure is not an option, only in space flight. All success is based on failure. Can you imagine working somewhere where your effort does not count, only results? Where, if you make the wrong statement at the wrong time you are summarily fired? Where you do not even know what the wrong statement is until you get fired? Yes, maybe it provides a good return for shareholders, maybe... However at what human cost? Would you want to work there? Certainly not me, and i consider myself tough and a survivor. I would not work there for one microsecond.

Enron, whose leaders went to
jail, and which went bankrupt from fraud, had these values displayed in their lobby: Integrity Communication Respect Excellence 6 (These values were not, however, what was really valued at Enron)

You make wise decisions (people,
technical, business, and creative) despite ambiguity You identify root causes, and get beyond treating symptoms You think strategically, and can articulate what you are, and are not, trying to do You smartly separate what must be done well now, and what can be improved later 10 Judgment

11 Communication You listen well,
instead of reacting fast, so you can better understand You are concise and articulate in speech and writing You treat people with respect independent of their status or disagreement with you You maintain calm poise in stressful situations

12 Impact You accomplish amazing
amounts of important work You demonstrate consistently strong performance so colleagues can rely upon you You focus on great results rather than on process You exhibit bias-to-action, and avoid analysis-paralysis

13 Curiosity You learn rapidly
and eagerly You seek to understand our strategy, market, customers, and suppliers You are broadly knowledgeable about business, technology and entertainment You contribute effectively outside of your specialty

14 Innovation You re-conceptualize issues
to discover practical solutions to hard problems You challenge prevailing assumptions when warranted, and suggest better approaches You create new ideas that prove useful You keep us nimble by minimizing complexity and finding time to simplify

15 Courage You say what
you think even if it is controversial You make tough decisions without agonizing You take smart risks You question actions inconsistent with our values

17 Honesty You are known
for candor and directness You are non-political when you disagree with others You only say things about fellow employees you will say to their face You are quick to admit mistakes

18 Selflessness You seek what
is best for Netflix, rather than best for yourself or your group You are ego-less when searching for the best ideas You make time to help colleagues You share information openly and proactively

Great Workplace is Stunning Colleagues
Great workplace is not espresso, lush benefits, sushi lunches, grand parties, or nice offices We do some of these things, but only if they are efficient at attracting and retaining stunning colleagues 21

We’re a team, not a
family We’re like a pro sports team, not a kid’s recreational team Netflix leaders hire, develop and cut smartly, so we have stars in every position 24

The Keeper Test Managers Use:
Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Netflix? 25

The Keeper Test Managers Use:
Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Netflix? 26 The other people should get a generous severance now, so we can open a slot to try to find a star for that role

Honesty Always Candor is not
just a leader’s responsibility, and you should periodically ask your manager: “If I told you I were leaving, how hard would you work to change my mind?” 28

All of Us are Responsible
for Ensuring We Live our Values “You question actions inconsistent with our values” is part of the Courage value Akin to the honor code pledge: “I will not lie, nor cheat, nor steal, nor tolerate those who do” 29

Pro Sports Team Metaphor is
Good, but Imperfect Athletic teams have a fixed number of positions, so team members are always competing with each other for one of the precious slots 30

Corporate Team The more talent
we have, the more we can accomplish, so our people assist each other all the time Internal “cutthroat” or “sink or swim” behavior is rare and not tolerated 31

Loyalty is Good • Loyalty
is good as a stabilizer • People who have been stars for us, and hit a bad patch, get a near term pass because we think they are likely to become stars for us again • We want the same: if Netflix hits a temporary bad patch, we want people to stick with us • But unlimited loyalty to a shrinking firm, or to an ineffective employee, is not what we are about 34

Hard Work – Not Relevant
• We don’t measure people by how many hours they work or how much they are in the office • We do care about accomplishing great work • Sustained B-level performance, despite “A for effort”, generates a generous severance package, with respect • Sustained A-level performance, despite minimal effort, is rewarded with more responsibility and great pay 35

Brilliant Jerks • Some companies
tolerate them • For us, cost to effective teamwork is too high • Diverse styles are fine – as long as person embodies the 9 values 36

Why are we so insistent
on high performance? In procedural work, the best are 2x better than the average. In creative/inventive work, the best are 10x better than the average, so huge premium on creating effective teams of the best 37

Our High Performance Culture Not
Right for Everyone • Many people love our culture, and stay a long time – They thrive on excellence and candor and change – They would be disappointed if given a severance package, but lots of mutual warmth and respect • Some people, however, value job security and stability over performance, and don’t like our culture – They feel fearful at Netflix – They are sometimes bitter if let go, and feel that we are political place to work • We’re getting better at attracting only the former, and helping the latter realize we are not right for them 39

Then the Market Shifts… •
Market shifts due to new technology or competitors or business models • Company is unable to adapt quickly – because the employees are extremely good at following the existing processes, and process adherence is the value system • Company generally grinds painfully into irrelevance 53

Seems Like Three Bad Options
1. Stay creative by staying small, but therefore have less impact 2. Avoid rules as you grow, and suffer chaos 3. Use process as you grow to drive efficient execution of current model, but cripple creativity, flexibility, and ability to thrive when your market eventually changes 54

A Fourth Option • Avoid
Chaos as you grow with Ever More High Performance People – not with Rules – Then you can continue to mostly run informally with self-discipline, and avoid chaos – The run informally part is what enables and attracts creativity 55

Mostly, though, Rapid Recovery is
the Right Model • Just fix problems quickly – High performers make very few errors • We’re in a creative-inventive market, not a safety-critical market like medicine or nuclear power • You may have heard preventing error is cheaper than fixing it – Yes, in manufacturing or medicine, but… – Not so in creative environments 63

“Good” versus “Bad” Process •
“Good” process helps talented people get more done – Letting others know when you are updating code – Spend within budget each quarter so don’t have to coordinate every spending decision across departments – Regularly scheduled strategy and context meetings • “Bad” process tries to prevent recoverable mistakes – Get pre-approvals for $5k spending – 3 people to sign off on banner ad creative – Permission needed to hang a poster on a wall – Multi-level approval process for projects – Get 10 people to interview each candidate 64

Rule Creep • “Bad” processes
tend to creep in – Preventing errors just sounds so good • We try to get rid of rules when we can, to reinforce the point 65

“Act in Netflix’s Best Interest”
Generally Means… 1. Expense only what you would otherwise not spend, and is worthwhile for work 2. Travel as you would if it were your own money 3. Disclose non-trivial vendor gifts 4. Take from Netflix only when it is inefficient to not take, and inconsequential – “taking” means, for example, printing personal documents at work or making personal calls on work phone: inconsequential and inefficient to avoid 76

Freedom and Responsibility • Many
people say one can’t do it at scale • But since going public in 2002, which is traditionally the end of freedom, we’ve substantially increased talent density and employee freedom 77

Summary of Freedom & Responsibility:
As We Grow, Minimize Rules Inhibit Chaos with Ever More High Performance People Flexibility is More Important than Efficiency in the Long Term 78

If you want to build
a ship, don't drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea. -Antoine De Saint-Exupery, Author of The Little Prince 80

Investing in Context This is
why we do new employee college, frequent department meetings, and why we are so open internally about strategies and results 87

Exceptions to “Context, not Control”
• Control can be important in emergency – No time to take long-term capacity-building view • Control can be important when someone is still learning their area – Takes time to pick up the necessary context • Control can be important when you have the wrong person in a role – Temporarily, no doubt 88

Independent Silos • Each group
executes on their objectives with little coordination – Everyone does their own thing • Work that requires coordination suffers • Alienation and suspicion between departments • Only works well when areas are independent – e.g., aircraft engines and blenders for GE 92

Highly Aligned, Loosely Coupled •
Highly Aligned – Strategy and goals are clear, specific, broadly understood – Team interactions focused on strategy and goals, rather than tactics – Requires large investment in management time to be transparent and articulate and perceptive • Loosely Coupled – Minimal cross-functional meetings except to get aligned on goals and strategy – Trust between groups on tactics without previewing/approving each one – so groups can move fast – Leaders reaching out proactively for ad-hoc coordination and perspective as appropriate – Occasional post-mortems on tactics necessary to increase alignment 94

Pay Top of Market is
Core to High Performance Culture One outstanding employee gets more done and costs less than two adequate employees We endeavor to have only outstanding employees 97

Three Tests for Top of
Market for a Person 1. What could person get elsewhere? 2. What would we pay for replacement? 3. What would we pay to keep that person? – If they had a bigger offer elsewhere 98Confidential

Takes Great Judgment • Goal
is to keep each employee at top of market for that person – Pay them more than anyone else likely would – Pay them as much as a replacement would cost – Pay them as much as we would pay to keep them if they had higher offer from elsewhere 99

Titles Not Very Helpful •
Lots of people have the title “Major League Pitcher” but they are not all equally effective • Similarly, all people with the title “Senior Marketing Manager” or “Director of Engineering” are not equally effective • So the art of compensation is answering the Three Tests for each employee 100

Annual Comp Review • At
many firms, when employees are hired, market compensation applies • But at comp review time, it no longer applies! • At Netflix, market comp always applies: – Essentially, top of market comp is re-established each year for high performing employees – At annual comp review, manager has to answer the Three Tests for the personal market for each of their employees 101Confidential

No Fixed Budgets • There
are no centrally administered “raise pools” each year • Instead, each manager aligns their people to top of market each year – the market will be different in different areas 102

Compensation Over Time • Some
people will move up in comp very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area • Some people will stay flat because their value in the marketplace has done that – Depends in part on inflation and economy – Always top of market, though, for that person 103

Compensation Not Dependent on Netflix
Success • Whether Netflix is prospering or floundering, we pay at the top of the market – Sports teams with losing records still pay talent the market rate, to get back to winning 104

When Top of Market Comp
Done Right... • We will rarely counter with higher comp when someone is voluntarily leaving because we have already moved comp to our max for that person • Employees will feel they are getting paid well relative to their other options in the market 106

Versus Traditional Model • Traditional
model is good prior year earns a raise, independent of market – Problem is employees can get materially under- or over-paid relative to the market, over time – When materially under-paid, employees switch firms to take advantage of market-based pay on hiring – When materially over-paid, employees are trapped in current firm • Consistent market-based pay is better model 107

Employee Success • It’s pretty
ingrained in our society that the size of one’s raise is the indicator of how well one did the prior year – but for us the other factor is the outside market • Employee success is still a big factor in comp because it influences market value – In particular, how much we would pay to keep the person 108

Good For Each Employee to
Understand Their Market Value • It’s a healthy idea, not a traitorous one, to understand what other firms would pay you, by interviewing and talking to peers at other companies – Talk with your manager about what you find in terms of comp – Stay mindful of company confidential information 109

Efficiency • Big salary is
the most efficient form of comp – Most motivating for any given expense level – No bonuses – Instead, put all that expense into big salaries, and give people freedom to spend their salaries as they think best – Employees can decide how much Netflix stock they want, versus cash 110

No Vesting or Deferred Comp
• We don’t want managers to “own” their people with vesting – all comp is fully vested • We want managers to be responsible for creating a great place to work, and paying at the top of market • Employees are free to leave us anytime, without penalty, but nearly everyone stays • Employees stay because they are passionate about their work, and well paid, not because of a deferred compensation system 111

No Ranking Against Other Employees
• We avoid “top 30%” and “bottom 10%” rankings amongst employees • We don’t want employees to feel competitive with each other • We want all of our employees to be “top 10%” relative to the pool of global candidates • We want employees to help each other, and they do 112

In some time periods, in
some groups, there will be lots of opportunity and growth at Netflix Some people, through both luck and talent, will have extraordinary career growth 114

Baseball Analogy: Minors to Majors
• Very talented people usually get to move up, but only true for the very talented • Some luck in terms of what positions open up and what the competition is • Some people move to other teams to get the opportunity they want • Great teams keep their best talent • Some minor league players keep playing even though they don’t move up because they love the game 115

Netflix Doesn’t Have to Be
for Life • In some times, in some groups, there may not be enough growth opportunity for everyone • In which case we should celebrate someone leaving Netflix for a bigger job that we didn’t have available to offer them – If that is what the person prefers 116

Three Necessary Conditions for Promotion
1. Job has to be big enough – We might have an incredible manager of something, but we don’t need a director of it because job isn’t big enough • If the incredible manager left, we would replace with a manager, not with a director 2. Person has to be a superstar in current role – Could get the next level job here if applying from outside and we knew their talents well – Could get the next level job at peer firm that knew their talents well 3. Person is an extraordinary role model of our culture and values 117

Timing • If a manager
would promote to prevent an employee from leaving, the manager should promote now instead of waiting • Three tests still have to be passed 1. Job big enough 2. Superstar in current role 3. Person is an extraordinary role model of our culture and values 118

Development • We develop people
by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them big challenges to work on – Mediocre colleagues or unchallenging work is what kills progress of a person’s skills 119

Career “Planning” Not for Us
• Formalized development is rarely effective, and we don’t try to do it – e.g., Mentor assignment, rotation around a firm, multi-year career paths, etc. 120

We Support Self-Improvement • High
performance people are generally self- improving through experience, observation, introspection, reading, and discussion – As long as they have stunning colleagues and big challenges to work on – We all try to help each other grow – We are very honest with each other 121